U.S. services sector slows; private payrolls increase

WASHINGTON (Reuters) - U.S. services industry activity slowed for a second straight month in October, the latest indication the economy has lost some momentum.

A job seeker (R) meets with a prospective employer at a career fair in New York City, October 24, 2012. REUTERS/Mike Segar

Still, the economy remains on solid footing as other data on Wednesday showed a pick-up in private sector hiring last month.

The Institute for Supply Management said its services index fell to 57.1 last month from a reading of 58.6 in September, drifting further from August’s post-recession high of 59.6.

Nevertheless, the survey showed the key services sector, which accounts for roughly two-thirds of the economy, remained solidly in growth mode. A reading above 50 indicates expansion.

Another survey conducted by information services company Markit also showed services sector growth slowed last month, but stayed in expansion territory.

“The recent moderation in the surveys is broadly consistent with our view that growth cooled off between the third and fourth quarters,” said Daniel Silver, an economist at JPMorgan in New York.

Separately, the ADP National Employment Report showed private payrolls increased by 230,000 in October, for a record seven straight months of job gains exceeding 200,000. Private hiring had risen 225,000 in September.

Job gains last month were broad-based, with mid-sized businesses adding the most workers in more than seven years.

LABOR MARKET TIGHTENING

“The labor market is tightening at a rapid pace, and it looks like we will get confirmation of that on Friday,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The employment data helped to lift stocks. Investors were also cheered by midterm elections that put the Republican Party, considered more business friendly, in control of both houses of Congress for the first time since 2006.

The dollar was trading higher against a basket of currencies, while prices for U.S. government debt fell.

The ADP figures come ahead of the Labor Department’s more comprehensive nonfarm payrolls report on Friday, which includes both public and private sector employment.

Payrolls are expected to have increased 231,000 last month after rising 248,000 in September, according to a Reuters survey of economists. The unemployment rate is forecast steady at a six-year low of 5.9 percent.

A strengthening labor market is seen tempering some of the slowdown in growth, which is driven in part by weakening global demand, especially in China and the euro zone.

Data ranging from consumer spending to trade and business spending suggest the economy exited the third quarter with less steam, setting it up for a further moderation in the final three months of the year. Construction spending has also been weak.

Third-quarter gross domestic product was initially estimated to have expanded at a 3.5 percent annual pace, but the weak trade and construction data implied growth would be lowered to around a 3 percent rate.

Growth estimates for the fourth-quarter range between a 2.2 percent and 3.0 percent pace.

Services sector activity last month was restrained by a sharp slowing in export orders. Measures of supplier deliveries, new orders and order backlogs also fell. A gauge of services industry employment, however, hit its highest level since August 2005.